With the markets now in an official correction, the question I’m asked is- “When should I buy in?”
Of course, I can’t offer any specific advice or recommendation…but I do have an opinion from a historical perspective. The last correction occurred Oct’14 due to the first US case of Ebola…that scare dropped the markets nearly 10%.
The current market downtrend is due to fears of global recession emanating from China- a much more virulent and contagious epidemic than Ebola. China’s stock market has wiped out its 50% gain despite the best (worst) efforts of government intervention and $1 trillion. Lack of China growth (and to a lesser degree India) has commodity prices in freefall. The FEAR is that commodity based countries (and companies) are likely to default and further devalue currencies.
Depending on if the fear becomes a reality…I wouldn’t be surprised to see at least a 15-20% correction, which would put the S&P500 at 1810-1705ish.
Three months ago [ Buying the Dip ] I stated, “I would consider the S&P500 a much better value at 1880 than at the current 2123. We’ll have to wait and see if my patience is rewarded.” Today, I’m still remaining patient because earnings estimates continue to be revised DOWN. Here’s a quote from a financial article dated Feb’14: “Wall Street expects earnings of $121 for 2014 and $137 for 2015.” HOWEVER, as of last week, 2015 earnings estimates have been scaled back to $124.
Of course, the resilience of this market has been due to a very accommodating Federal Reserve, so all bets are off if there is a realistic consensus of QE4 intervention.
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